Continued turmoil in Chinese markets has bled into European trading and pulled London stocks lower despite improving Covid case numbers.
Equity traders remained broadly cautious although the pound lifted to its highest in a fortnight as a result of the optimism regarding the trend in UK case numbers, while travel firms were among those to make gains.
The FTSE 100 closed 29.35 points, or 0.42%, lower at 6,996.08 on Tuesday.
“The rout in Chinese markets continued with the Hang Seng sliding to a nine-month low, which in turn has bled into wider market sentiment in Europe on Tuesday,” said Michael Hewson, chief market analyst at CMC Markets UK.
“The weakness seen in Europe appears to be a by-product of wider fears that a policy misstep from Beijing could have wider consequences for the global economy.
“Travel and leisure have also had a more positive tone today on reports the UK could ease travel restrictions on travellers from the EU and US, with Tui showing strong gains, along with Ryanair and Jet2.”
Europe’s other major markets also posted significant drops, although they regained some ground after a particularly sharp slide in early trading.
The German Dax decreased by 0.64% and the French Cac moved 0.71% lower.
Across the Atlantic, the US markets followed their European counterparts on the back foot and opened lower ahead of a major day of earning reports including Microsoft and Apple.
Meanwhile, sterling hit its best reading against the dollar in 12 days as the US greenback faltered again.
The pound was up 0.03% versus the US dollar at 1.388 and was 0.02% lower against the euro at 1.173.
In company news, Just Eat Takeaway shares jumped after major shareholder Cat Rock Capital called on the company to take action or risk being the target of a hostile takeover.
The activist investor, which owns a 4.7% stake, said it should look at strategic options such as divestments or another merger to ensure it is not vulnerable to a cheap offer.
Shares in the food delivery business closed 226p higher at 6,217p.
Dettol maker Reckitt slumped in value, following a similar fall by rival Unilever on Monday, amid concerns of a sales slow-down after it was buoyed by the pandemic.
The consumer giant closed the day 525p lower at 5,700p.
Newspaper publisher Reach climbed in value after it posted a 4% sales rise for the past half year following a surge in digital sales.
The Daily Mirror owner finished 21p higher at 334p.
Chemicals firm Croda leapt by 440p to 8,266p to close at the top of the FTSE 100 after it saw a “record” first-half profit and increased its interim dividend payment.
The price of oil was treading water on Tuesday as it was caught between concerns on the pace of the global economic recovery and tightened energy supply.
Brent crude declined by 0.11% to 74.42 dollars per barrel.
The biggest risers on the FTSE 100 were Croda, up 440p at 8,266p, Just Eat Takeaway, up 226p at 6,217p, DS Smith, up 5.8p at 426.9p, and Rolls-Royce, up 1.25p at 98.27p.
The biggest fallers were Reckitt, down 525p at 5,700p, Scottish Mortgage Investment Trust, down 57.5p at 1,278p, Intermediate Capital Group, down 79p at 2,184p, and Informa, down 13p at 487p.